James Kwak had a great observation today about students of Economics versus practitioners of Economics. After some preamble, this is the crux:
This is something I’ve mentioned in passing often. I think that basic economics, the way it is taught today, tends to give people reflexive pro-free market, anti-government positions — positions that arenot held by people with a deeper exposure to economic thinking. When your understanding of government finances is based on reading the newspaper, it’s somewhat eye-opening to come to college and learn that free markets lead to maximum societal welfare and taxes impose a deadweight loss on society — the pictures are so simple and compelling. That’s why a little bit of economics makes you more likely to be a Republican.
But when you learn more about principal-agent problems, information asymmetries, and so on, you learn that those simple pictures are simplistic to the point of being misleading. That’s why Joseph Stiglitz argues in Freefall that understanding economics is crucial to understanding why free markets often lead to suboptimal outcomes. The problem isn’t knowledge per se; it’s a little bit of knowledge.
This reminds me of my journey. Idealistic and naive to start with, I stayed that way awhile. It was only on encountering reality without my blinders, that I began to understand. Those opinions that came from the left side of the spectrum, which I once dismissed ad hominem, are often true. Things are not black and white. I can also say, black is not black and white is not white. There is more than meets the eye. Sometimes we think we are disagreeing about facts, when we are actually reflecting different priorities or perspectives. Experience counts.